The financial collapse of Hermitage Offshore Services is a significant event, not least because it involves some of the top figures in shipping.
Hermitage itself is a new name in the offshore support vessel sector but a highly respected one and certainly everyone knows Emanuele Lauro, Robert Bugbee and Herbjorn Hansson.
The creation of Hermitage was always a bet for the Scorpio shipping team, but understandably no one predicted a pandemic.
When Lauro and Bugbee started to buy up shares and then took control of Hermitage — then Nordic American Offshore — from Hansson 20 months ago, there were signs of hope in a services sector still recovering from an earlier downturn.
Looking up
The Scorpio team wrapped its own offshore interests into Nordic American Offshore's and rebranded it as Hermitage in April last year.
Between then and December, Hermitage could boast its OSVs based in the North Sea had achieved 91% utilisation. This compared with 58% recorded during 2018.
Things were looking up, but then coronavirus struck forcing social lockdowns, economic chaos and an oil price falling to zero.
This time round — as last — oil majors slashed spending and suspended developments, leaving hire rates for service vessels crashing in their wake.
Within weeks, North Sea spot rates for platform supply vessels were being reported at close to record lows of $2,500 per day and an estimated 40 OSVs were chased into lay-up.
It is sad Hermitage has run into trouble, because it impressed brokers and customers with its commitment to top-class crews and vessels.
Hermitage follows US-based support vessel operator Hornbeck Offshore Services, which filed for bankruptcy in May with long term debts of $1bn
Lauro and Bugbee have been working for months with creditors to find an out-of-court solution to restructuring $130m-worth of debt before they filed for reorganisation under Chapter 11 last week.
White knights
My colleague Joe Brady reported how Scorpio's banks, DNB and SEB, were pushing it to put more equity into the business — something Lauro and Bugbee were reluctant to do.
The team from Scorpio had been described as “white knights” when they originally swooped in to buy struggling Nordic American Offshore in December.
Now, Hermitage may be reliant on its own white knight to buy what is left of the assets, although Scorpio insists it can emerge as a going concern. Hermitage’s two anchor handling tug supply units have been sold off, but 21 vessels remain.
Hermitage, for the moment, remains in the majority control of Scorpio private investors. In June last year, both Hansson and his Nordic American Tankers held significant stakes.
Hermitage follows US-based OSV operator Hornbeck Offshore Services, which filed for bankruptcy in May with long-term debts of $1bn.
Major US Gulf rig owner, Diamond Offshore Drilling, Whiting Petroleum and Chesapeake Energy — once valued at $37bn — have gone the same way.
No doubt others will follow into Chapter 11, even as the value of WTI crude has bounced back up above $40 per barrel.
Oil companies need some certainty that prices will move towards $60 per barrel and stay there before they will dare really open the spending taps.
There are some OSV buyers. Private equity-backed players such as Bridgewater Offshore are among those snapping up OSVs at knock-down prices.
Some of the PSVs being bought are anecdotally said to be heading for non-oil activities.
This would be good for everyone, as is the burgeoning renewables sector which has largely been unaffected by Covid or the commodity price crunch.
Bleak winter
Companies such as Siem Offshore continue to win deals, including a recent six-month hire contract to provide services to the BARD Offshore 1 wind farm off Germany.
But it is also ominous this time round for the OSV sector that oil majors such as Shell and BP are saying they will start to cut back fossil-fuel production forever because of climate change.
To buck this gloomy trend, hire rates for large AHTS vessels in the North Sea have almost tripled in recent weeks, but that is due to bad weather and a surfeit of summer rig moves.
Brokers in Aberdeen tell me this spike will not last and predict the whole OSV market is heading for a bleak winter.
Meanwhile, Lauro and Bugbee have their huge tanker and bulker fleets to think about as well as talks with the banks. They probably feel Scorpio has been stung enough by offshore.
